Monday, January 26, 2009

Crisis of Neo-liberalism- Keynesianism no Answer

The Great Depression of the 1930s was finally pulled out of its crisis after World War II together with Keynesian formulas of state intervention nationalization) and the welfare state. In those days it also had to contend with a powerful socialist camp. But with the temporary collapse of socialism worldwide and the retreat of national liberation movements and a persisting economic crisis since the mid-1970s, the neo-liberal formulas were pushed to the fore.

Reaganism,Thatcherism, et al became the fashion and Keynesianism, nationalization were much ridiculed, not to mention the socialist alternative. The 1990s saw neo-liberal economic polices peak where the market was the new god that determines everything.

Fortunes were made on a scale never seen in the history of capitalism; of course, in the wake of immense impoverisation, with the rich-poor gap also becoming the widest ever.

It was even portrayed as “the end of history”, as though the ‘golden’ capitalist era is here for ever and socialism relegated only to history text books. Even welfare was now privatized with a massive mushrooming of NGOs funded by the moneybags and the state.

Growth rates grew compared to the era of the 1970s and that became the irreversiblealibi for the neo-liberal theoreticians. And with it was accompanied the gigantic leaps in communication technology in the form of the computer, internet, cell phone, TV, etc that gave it the glamour of a scientific inevitability. The high profile media portrayed none of the misery below the surface and only promoted the world of wealth and glamour.

The middle class was brainwashed with this continuous bombardment, and a section even got an opportunity to eat off some crumbs from the imperialist/comprador table. The smallest dissidence was labeled ‘terrorist’ and callously dispensed with. Once so branded, one ceased to be human, it was as though a dangerous insect had been crushed. The poverty stricken masses too were a nonentity in this make-believe world.

But now the fantasy world of the neoliberal bubble has burst; and burst in a way that it is unlikely to re-gain for long. Meanwhile it will pull down with it millions more into the mire and suck away lives in lakhs. With one financial bubble after the other bursting the theoreticians of neoliberalism have no answers and seem totally helpless in the face of the continuing collapse of pillar after illar of the financial establishment. The gods of power and wealth are tumbling down.

All these crisies and bursting of bubbles since the 1970s are, at its roots, crises of over-production. Due to levels of extreme exploitation, markets for commodities have scarcely grown while profits and capital accumulation have skyrocketed.

This is clear even from the Fortune 500 listings each year which show negligible growth in sales. So, the accumulated profits has no outlet in industry and the manufacturing sectors. That is why much of the accumulated surplus has gone into the financial sector -in the form of third world debt, and then into speculation and real estate, creating the bubble economies.

They have just their standard fiscal answers — reduction of interest rates is their main tool: to increase liquidity (i.e. money for capitalists) and make available easy credit for the people to spend and revive the slumping market. But it is not working. On Oct 9th, for the first time ever several Central Banks acted in concert to stem the market panic. The US Fed cut interest rates by 50 basic points to 1.5%; while the European Central Bank cut interest rates from 4.25% to 3.75%. The Bank of England and the Central banks of Canada, Sweden, Switzerland and China also cut interest rates within seconds of each other.

But this was not able to stem the rot. The collapse of the banks, financial institutions and now even the industrial giants continue. Interest rates were reduced further and now in the US the rate stands at 1% and in Japan at 0.2%. On Nov 6th England once again slashed interest rates, this time by as much as 1.5% to bring it to 3% — a 53-year low.

In desperation they have thrown all their neo-liberal theories to the winds and governments have intervened with gigantic bail-our packages to rescue the banks, investment institutions and even companies. This is defacto resorting to the much abused ‘nationalization’. As long as they were making huge profits, privatization was the mantra; now when they are making losses and are in fact collapsing it is back to nationalization.

But this Keynesian alternative is no real solution; it is a mere palliative to give immediate relief. The social democrats and the CPI/CPM type socialists may harp on these alternatives but they will have to explain the earlier failures of the Keynesian model of the 1960s resulting in the crisis which began in the 1970s, and still continues. Also they will have to explain the collapse of the Soviet Union (after capitalist restoration) and those of the then East European countries — all of which were built on a powerful state sector.

The present crisis which is reminiscent of the Great depression is a systemic problem of the capitalist mode of production itself. The roots of the crisis lie in the capitalist system itself for which there is no solution within it. The only real solution to revive the economy is through the very overthrow of the system and its replacement with the socialist alternative.

Extract from Article in Peoples Truth India No 4 - Voice of the Indian Revolution